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Brazil Homebuilders Plunge as Inflation Forecasts Jump

PDG Realty SA Empreendimentos e Participacoes SA, Brazil’s biggest homebuilder by revenue, dropped to a one-month low as it led a rout in real-estate stocks after economists raised their 2013 inflation forecast to the highest on record.

PDG lost 3.2 percent to 7.22 reais at the close of trading in Sao Paulo. The benchmark Bovespa dropped 1.1 percent. The BM&F Bovespa Real Estate index fell 1.2 percent, with 14 of 21 members declining.

Homebuilders dropped as economists increased their 2013 inflation forecast to the highest on record. Consumer prices in Brazil will rise 5.11 percent next year, according to the median forecast in a central bank survey of about 100 economists published today, up from last week’s estimate of 5.02 percent. The yield on the Brazilian interest-rate futures contract due in January 2013 rose six basis points, or 0.06 percentage point, to 9.33 percent.

PDG and other homebuilders fell as they were “reacting to a worse perspective for inflation and, therefore, for Brazilian monetary policy,” Felipe Miranda, an analyst at Gradius Gestao, which manages 150 million reais in Sao Paulo, wrote in an e-mail. “Stocks are very sensitive to that kind of expectation.”

The so-called “neutral” rate of interest needed to keep inflation on target with the economy growing at a sustainable pace is 5.5 percent after adjustments for inflation, according to the median estimate in a survey of economists published Feb. 23. That is higher than the current inflation-adjusted interest rate of 4.3 percent.

Interest-Rate Cuts

Since August, policy makers have cut the Selic rate four times, reduced taxes and pledged to boost public investments to ensure growth of 4.5 percent this year. The stimulus has raised concern among economists that central bank President Alexandre Tombini may fail to fulfill his pledge to slow inflation to the bank’s 4.5 percent target this year.

The higher inflation forecast came after Tombini reiterated at a meeting of finance officials from the Group of 20 richest nations over the weekend that there is a high chance the central bank will cut the benchmark interest rate to less than 10 percent this year, from the current 10.5 percent.

Cyrela Brazil Realty SA Empreendimentos e Participacoes slipped 3.2 percent to 17.42 reais. Brookfield Incorporacoes SA dropped 3 percent to 6.45 reais. Rossi Residencial SA fell 2.9 percent to 10.21 reais.

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